Pepsi Push Into Soviet Union a Textbook Case in Marketing

MOSCOW — When Pepsi-Cola went on sale here nearly 15 years ago, the first American consumer product to be sold widely in the Soviet Union, Pepsico faced an unusual marketing problem.

How could it create demand for a new product without most of the modern marketing techniques--without television advertising or radio commercials, without big giveaways or supermarket promotions, without the lure of entertainment celebrities or top athletes?

"We found ourselves going back to the marketing strategies of the '30s and updating," Richard Norton, Pepsico International's vice president for Eastern Europe, said in reviewing Pepsi's steady growth to more than 1 billion servings here a year.

"Very few marketing people remember it, but there was a pre-television era. This was a time when marketing was based largely on the distribution and sales network you built up rather than on media blitzes creating demand almost simultaneously with your ability to supply it.

"But that is what we found ourselves doing--assuming that there would be a market for Pepsi if we could get the product to the consumer, establishing production capacity to meet this anticipated demand, setting up the distribution network and only then telling people this great product was there for them."

And Pepsi's approach, perhaps adapted to the recent political, economic and social changes sweeping the Soviet Union, is likely to be the model for most of the other Western companies that are now joining it in the huge but difficult-to-sell Soviet consumer market.

Coca-Cola, Fanta and Astro Pizza are already here. McDonald's, Baskin-Robbins, Pizza Hut and even Visa, among others, are coming within a few months.

Negotiations are under way on a variety of other brand-name consumer products, including cosmetics, toiletries, prepared foods and leisure clothes.

And Japanese electronics companies are positioning themselves for a future market in foreign televisions, stereo and video equipment, household appliances and cameras.

"The old assumption with consumer goods," a veteran American business representative here commented, "was that you basically sold the deal to your Soviet partners, that they then established production and worked out distribution, and that the product, by virtue of being foreign and superior to anything local, would sell itself."

That was largely Pepsi's experience.

After the first plant opened in 1974, Pepsi found that it could open one or two additional plants each year, and that its product was quickly accepted but with a different sort of marketing than it uses in most other countries. There are now 20 plants, with two more due to open this year.

As much effort went into maintaining Pepsi's worldwide quality standards as in to developing product awareness and brand consciousness, Norton said.

Distinctive Kiosks

Marketing efforts focused on sponsorship of sports functions, including soccer, gymnastics and ice hockey, where spectators would be able to buy Pepsi easily and television viewers would see the Pepsi name.

With its Soviet partners, Pepsico also established a network of 73 distinctive blue, white and red kiosks in Moscow, largely around subway stations and in other high-traffic spots; in summer, the average kiosk sells 4,000 servings a day, and Pepsico hopes that those consumers like it enough to order it in restaurants and buy it in groceries.

Consumers pay the equivalent of 40 cents for a 12-ounce bottle of Pepsi.

Advertising, until recently, was limited to placards on bus, area newspapers when a local plant opened and an occasional billboard.

"There they were, with a 10-year monopoly on foreign colas in the second-biggest economy in the world, and all they could do to develop the market was move from city to city, opening plants and selling the product as it came off the assembly line," said an American business executive who admits that he has grown disenchanted with trying to break into the Soviet market with a variety of consumer products.

"The Pepsi story should be a warning to anyone who has big ambitions about this market. After 15 years, their sales work out to about one bottle per capita every three months. No doubt they are making money, but it's equally clear that as a return on the effort of doing business here, versus many places in Eastern Europe or the Third World, their profits are probably minimal."

Changes are coming, however, as more Western companies compete to enter the Soviet market, and the government here sees new benefits in competition.

Pepsi is facing competition from Coke, Fanta will get competition from Tanets (a new soft drink from Pepsi) and Pizza Hut, Astro Pizza and Roma Pizza all want to start franchise operations with Soviet partners.

Link With U.S. Life Style

And last month Pepsi bought television time for five 60-second commercials during a special series of shows on American life that were broadcast to estimated prime-time audiences of 150 million before the Soviet-American summit meeting here.